Introduction and Alignment:
Cost-volume-profit (CVP) analysis is a great resource for planning and decision-making within an organization. CVP allows managers to know certain benchmarks, such as the break-even point and the number of sales necessary to obtain the desired profit. Additionally, CVP is utilized to assess the impact of changes in operating costs or selling price upon profit.
Suppose you have been asked to advise for the manufacturing firm, Kicker, which had sales and cost experience in thousands of dollars as depicted in this spreadsheet (IN ATTACHMENT.) for May of the current year and for May of the prior year.
In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. At the beginning of the current year, Kicker’s accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town.
– Calculate the contribution margin ratio for May of both years.
– Calculate the break-even point in sales dollars for both years.
– Calculate the margin of safety in sales dollars for both years.
– Analyze the differences shown by each of these calculations over both years. Explain your findings